Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Whitecap Resources Inc (SPGYF, Financial) reported record quarterly production averaging over 177,000 boe per day, surpassing their forecast of 170,500 boe per day.
- The company generated $426 million in funds flow and $223 million in free funds flow, reflecting strong financial performance.
- Operating costs decreased to $13.49 per boe, demonstrating effective cost management and higher production efficiency.
- The company announced a positive FID on their Phase 1 new build Lator facility, fully funded by PGI, enhancing future growth prospects.
- Whitecap Resources Inc (SPGYF) plans to use $200 million from partial infrastructure dispositions for share repurchases, indicating a commitment to returning value to shareholders.
Negative Points
- Despite strong performance, the company faces ongoing commodity price volatility, which could impact future financial results.
- The production additions are described as 'chunky,' indicating potential challenges in maintaining a smooth production profile.
- There is a significant cash tax expense of $100 million in the quarter, including a $33 million impact from capital gains on partial infrastructure disposition.
- The company has not increased its dividend, citing the current yield as too high, which may disappoint income-focused investors.
- Share repurchases were minimal in Q2 despite having excess free cash flow, raising questions about capital allocation priorities.
Q & A Highlights
Q: Can you provide more clarity on the well performance in the multi-bench development and what results you're looking for to confirm your development strategy?
A: Joey Wong, Vice President, West Division, explained that the well performance slightly exceeded expectations, with production at 1,600 barrels per day. They are monitoring well interactions, which have been minimal, indicating positive results. This reaffirms their current development plans.
Q: How should we think about the CapEx cadence going into 2025, especially with the accelerated development of Lator?
A: Thanh Kang, CFO, stated that for 2025, they anticipate 5% growth, reaching about 180,000 boes per day, with capital spending between $1.1 billion and $1.2 billion, despite the accelerated Lator development.
Q: What is the cadence of new Montney and Duvernay tie-ins for the back half of the year, and how will this shape the production profile through year-end?
A: Thanh Kang noted that production additions are expected to be significant in the fourth quarter, with no new wells online until late August. They anticipate reaching the high end of their guidance range of 167,000 to 172,000 boes per day.
Q: Why were share repurchases minimal in Q2 despite having excess free cash flow?
A: Thanh Kang explained that share repurchases are planned on a six-month basis, with more free cash flow expected in the second half of the year to execute on the NCIB. They plan to allocate $200 million from infrastructure disposition proceeds towards share buybacks.
Q: Can you discuss your capital allocation priorities given the balance sheet flexibility post-infrastructure dispositions?
A: Thanh Kang emphasized that the priority is on share buybacks over dividend increases. They are also considering smaller tuck-in acquisitions where they have operational expertise, rather than larger-scale M&A activities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
